Bond yields have been soaring for months and particularly since the presidential election. The 10-year Treasury yield is up nearly 70% from its mid-summer lows. Yet even after a run like that, the 10-year yield is still a pitiful 2.2%. Good luck living on that in retirement. Investors looking for retirement income are still going to have better luck with a portfolio of dividend stocks.
High-yield dividend stocks are uniquely well suited as retirement stocks, as they reduce your need to sell assets to fund your retirement needs.
Think about it. The market has traded mostly sideways for the last two years … and from 1968 to 1982, the market traded sideways for a whopping 14 years. If you’re having to sell off a chunk of your growth stocks every year to fund your retirement needs, another long stretch like that is likely to leave your portfolio depleted and with no real chance of recovery.
But if you’re depending on the income stream thrown off by a portfolio of dividend stocks, your retirement is safe regardless of whether the market goes up, down or sideways … indefinitely.
With that as a backdrop, the following are three of my favorite dividend-paying retirement stocks. All of these are stocks that I’d feel comfortable dropping in a drawer and forgetting about for years at a time.
Dividend Stocks to Buy for Retirement: Realty Income Corp (O)
Dividend Yield: 4.3%
I’ll start with the “monthly dividend company,” conservative retail real estate investment trust Realty Income Corp (NYSE:O).
This is a company that really prides itself on taking care of its investors, having paid 556 consecutive monthly dividends and having raised that dividend for 76 consecutive quarters.
Realty Income has raised its dividend at a 4.6% annual clip since 1994 — a 22-year span of time that has seen two major recession and bear markets and just about everything else under the sun.
Realty Income is about as close to a bond as you’re going to find in the stock market. Its cash flows are backed by a portfolio of “boring” and stable properties like your local Walgreens Boots Alliance Inc (NASDAQ:WBA) or CVS Health Corp (NYSE:CVS) store. And it’s finally trading at a reasonable price after the recent correction in REIT prices. Prices have fallen about 23% from their late-summer highs.
I own shares of O that I swore to never sell, intending to pass them on to my kids someday. But I wasn’t exactly keen on adding new money when the shares were trading above $70. After the recent correction, Realty Income is a buy again.
Dividend Stocks to Buy for Retirement: Enterprise Products Partners L.P. (EPD)
Dividend Yield: 6.4%
Up next is conservative pipeline operator Enterprise Products Partners L.P. (NYSE:EPD). Enterprise Products is one of the largest midstream pipeline operators in the world with over 49,000 miles of pipe.
A lot of companies in the master limited partnership space got themselves into trouble this time last year. They borrowed too much money, grew too fast and promised their investors higher distributions than they could afford to pay.
Well, that’s not Enterprise Products. EPD has taken the view that slow and steady wins the race, and their more conservative approach has served them well. EPD sailed through the energy crisis last year without even a scratch.
Last quarter, EPD raised its distribution by 5%. This marked the 49th consecutive quarter in which EPD raised its dividend and the 58th hike since its 1998 IPO. Not a bad run indeed.
Today, you can buy Enterprise Products and lock in a fantastic 6.4% yield, most of which is tax deferred due to depreciation charges. While you shouldn’t own EPD in an IRA account due to potential tax complications, you absolutely should include it in your portfolio of dividend stocks.
Dividend Stocks to Buy for Retirement: STAG Industrial Inc (STAG)
Dividend Yield: 6.3%
For a retirement stock a little off the beaten path, I’d recommend STAG Industrial Inc (NYSE:STAG), a high-yielding REIT in the light industrial space.
STAG is appealing to me for a number of reasons. To start, it’s a young REIT, having had its IPO as recently as 2011, and it’s small. A smaller REIT has the ability to quickly grow its portfolio while still being very choosy on the properties it buys. That becomes much more difficult the larger a REIT gets.
I also like that STAG focuses on distinctly non-glamorous corners of the market. Gritty industrial properties tend to have higher cap rates than glitzy trophy properties.
And I particularly like the price. Like most of the rest of the REIT space, STAG has had a correction of late and is now a good 12% below its 52-week high.
STAG also yields an impressive 6.3% and has raised its dividend consistently since its IPO.
This is a small-cap stock, so be careful to use a limit order if you intend to trade in large blocks. But I consider this a stock you can plan to hold on to for several years to come.
Charles Sizemore is the principal of Sizemore Capital, a wealth management firm in Dallas, Texas. As of this writing, he was long O, EPD and STAG.